Weekly Market Outlook (17-21 June)

UPCOMING EVENTS:

• Monday: PBoC
  MLF, New Zealand Services PMI, China Industrial Production and Retail
  Sales, Eurozone Wage Growth.
• Tuesday: RBA
  Policy Decision, Eurozone ZEW, US Retail Sales, US Industrial Production.
• Wednesday: UK
  CPI, US NAHB Housing Market Index, BoC Meeting Minutes.
• Thursday: New
  Zealand GDP, PBoC LPR, SNB Policy Decision, BoE Policy Decision, US
  Housing Starts and Building Permits, US Jobless Claims.
• Friday:
  Australia/Japan/Eurozone/UK/US Flash PMIs, Japan CPI, UK Retail Sales,
  Canada Retail Sales.

Monday

The PBoC is expected to keep the MLF rate
unchanged at 2.50%. There doesn’t seem to be any urgency to ease policy further
amid an improvement in the economic data. The central bank will also likely
keep the LPR rates unchanged at 3.45% for the 1-year and 3.95% for the 5-year
on Thursday.

Tuesday

The RBA is expected to keep the Cash Rate
unchanged at 4.35%. As a reminder, the central bank got a bit more hawkish amid
a lack of clear improvement in inflation and said that it couldn’t rule in or
out future changes to the cash rate.

The RBA’s forecasts were revised to show
that rates will likely stay at 4.35% until mid-2025. The recent data supports
the case to keep the policy unchanged as the monthly
inflation report surprised to the upside and the labour
market data came in stronger than expected.

The US Retail Sales M/M is expected at 0.3%
vs. 0.0% prior, while the ex-Autos measure is seen at 0.2% vs. 0.2% prior.
Consumer spending has remained stable which is something you would expect given
the solid wage growth and resilient labour market. We are getting some worrying
signals from the UMich
Consumer Sentiment which could suggest that consumer spending is likely to
soften a bit.

Wednesday

The UK CPI Y/Y is expected at 2.0% vs.
2.3% prior, while Core CPI Y/Y is seen at 3.5% vs. 3.9% prior. The last
report was a bit of a disappointment for the BoE as services inflation,
which is what the central bank cares most about, came in much higher than expected
at 5.9% Y/Y vs. BoE’s estimate of 5.5%.

This report won’t change anything for the upcoming
BoE decision on Thursday, but a surprisingly soft release should see the market increase
the rate cuts pricing and tilt the central bank’s decision on a more dovish
side.

Thursday

The SNB is expected to cut interest rates to
1.25% although the market pricing stands around 60%, so it’s more of a coin-flip
between 1.50% and 1.25%. The latest inflation
rate came in line with SNB’s estimate at 1.4% Y/Y (Core 1.2% Y/Y).

The Swiss Franc saw a strong appreciation
recently due to Chairman Jordan’s comments
where he said that if any inflation risk were to materialise, it would most
likely be associated with a weaker Franc which could be counteracted by selling
foreign exchange (buying CHF).

He also touched on the neutral interest
rate (r*) and said that they estimate it to be around 0%. So, even if they cut
rates, in theory their policy would still be restrictive and if inflation were
to rise somewhat in the coming months, they could just intervene by buying
Swiss Franc.

The BoE is expected to keep the Bank Rate
unchanged at 5.25%. As a reminder, the last meeting was a bit more dovish than
expected with Ramsden joining Dhingra voting for a rate cut and Governor Bailey
delivering some dovish comments like saying that they could cut more than
the market expected.

It’s pretty evident that the central bank
is eager to cut but nonetheless wants a bit more confidence before easing the
policy rate. The tone will likely be shaped by the UK CPI the day before.

The US Jobless Claims
continue to be one of the most important releases to follow every week as it’s
a timelier indicator on the state of the labour market. Initial Claims keep on
hovering around cycle lows, while Continuing Claims remain firm around the
1800K level.

This has
led to a weaker and weaker market reaction as participants become used to these
numbers. Nonetheless, we got a notable
miss in both Initial and Continuing Claims last week although the culprit
might have been just a seasonal effect or measurement
adjustment.

This week Initial Claims
are expected at 240K vs. 242K prior, while there’s no consensus at the time of
writing for Continuing Claims although the prior release showed an increase to
1820K vs. 1790K previously.

Friday

The Japanese Core CPI Y/Y is expected at 2.6%
vs. 2.2% prior. The Tokyo CPI saw all inflation measures increasing compared to
the prior month, so we might see the same happening for the National readings.
It shouldn’t change much for the BoJ at the moment as they will likely need a
couple more reports before deciding on another rate hike.

As a reminder, the central bank
disappointed the market last week as it kept everything
unchanged despite expectations of a reduction in bond purchases. Nonetheless,
Governor Ueda in the press conference pre-committed
to a reduction immediately after the next meeting and mentioned that it will be
“substantial”.

Friday will also be the Flash PMIs Day
with the markets, as it usually the case, focusing more on the US readings:

• Eurozone Manufacturing PMI: 48.0 expected vs.
  47.3 prior.
• Eurozone Services PMI: 53.5 expected vs. 53.2
  prior.
• UK Manufacturing PMI: 51.0 expected vs. 51.2
  prior.
• UK Services PMI: 53.2 expected vs. 52.9
  prior.
• US Manufacturing PMI: 51.0 expected vs. 51.3
  prior.
• US Services PMI: 53.5 expected vs. 54.8
  prior.